INSURANCE DEBATE NEEDS MORE LOGIC

The quality of the debate on all sides regarding the current public liability insurance crisis leaves a lot to be desired.

To illustrate, many organisations which have been denied cover or which are being required to pay substantially higher premiums than on previous occasions usually feel that this is most unfair as they have never made a claim themselves. However, insurance works on the law of large numbers and no rational person would expect to buy life insurance cover for nothing merely because he or she had not died so far.

But governments are being equally illogical. They are now seeking guarantees that insurers will reduce premiums if it appears likely that claim cost reductions will be achieved through legislative changes. This attitude is understandable in one sense, but perhaps some group should tell the governments that it is happy to start a new insurance company with guaranteed low premiums - just as long as long as the group is not expected to also guarantee that claims on the company will always be paid in full.

It should be noted that:

• In many cases the increases in premiums now being quoted seem unreasonably large because they are being measured against the totally inadequate premiums which were being charged by a company which as a result went broke with a multi-billion dollar deficiency.

• Low premiums are not in the consumer interest in the way that low prices for, say, cars or refrigerators are. Nobody wants another HIH-type collapse.

• Premiums have to have regard to the costs of reinsurance. In a post 2001-09-11 world the international reinsurers are not going to be interested in offering cheap cover specifically to Australia, which represents only about 2 per cent of the worldwide market.

• On the one hand, governments should keep out of businesses in areas where private shareholders are willing to accept commercial risks. However, on the other hand, they should be willing to enter areas which are important to the community but where private enterprise is not willing or able to come to the party.

• The privatisation of state and territory government insurance offices a few years ago made sense because the private sector insurance market was highly competitive at that time. In consequence it was unreasonable to make the general body of taxpayers compulsory investors in purely commercial operations. But circumstances have changed and it is not unreasonable for governments to react to market failures.

• It is as logical for the government sector to provide public liability cover to the community as it is to provide the range of social security benefits currently available through Centrelink or Medicare.

• The government sector (including local government) already provides many facilities for community activities at taxpayer expense - for example, parks, playground equipment, swimming pools, bicycle paths, halls, libraries and many others. The provision of public liability cover should be regarded as just one more example of such a facility.

• Governments are making huge windfall profits out of the stamp duty and GST on the higher insurance premiums now being charged.

Another illogical game being played is to blame the lawyers for everything. It may be a popular thing to do, but that profession is being criticised for exercising its rights to free speech by advertising to accident victims that they may have legal (as well as moral) entitlements to compensation. Yet in all other walks of life it is considered praiseworthy to give the public useful consumer information.

It is also quite hypocritical for the governments which have reduced the funding for legal aid to then object to private sector moves plugging this gap by devices such as "no win, no fee".

While an official desire to reduce the costs of damages awards is understandable, government spokesmen should really acknowledge some fairly obvious facts:

• No action by lawyers can create entitlements to money which are not there in the first place.

• Legal firms are most unlikely, in their own interests, to take on cases which are vexatious or which have no real merit.

• A claimant without a valid case will not be able to convince the court trying the matter to award him or her anything.

• On the other hand, in a democratic country such as Australia, which believes in the rule of law, it is just and equitable that any victim with a valid claim should be able to make it out in court with the benefit of professional help.

Public liability cover in recent times has not been cheap and in some cases has not been available at any price. This has induced the State governments to institute what they call "reforms" to the system of awarding damages to persons who have been injured by the negligence of others.

However, the legislated changes have all been at the expense of certain victims. These persons would hardly regard being denied damages payments as a reform - but then numerically there are far less victims than there are voters. Furthermore, until a person actually becomes a victim or has a family member in that situation there is a tendency to regard incidents as something that happens only to other people.

The so-called reforms focused mainly on minimising personal injury claims costs by implementing caps and thresholds on court-awarded damages and making changes to the law of negligence.

Another aspect needs mention. Minimising legal costs sounds like a good idea until one realises that what was meant was not a fall in absolute costs but only in the amounts that can be awarded to successful plaintiffs.